EU Court Says, Yes, You Can Resell Your Software, Even If The Software Company Says You Can't

from the good-for-them dept

You may remember that a couple years ago, an appeals court in the US ruled that, when dealing with software, as long as the provider calls what it sells "a license" rather than a "sale" it can take away your first sale rights. As you hopefully know, first sale rights are what let you resell goods that have copyright-covered material in them -- such as books -- without asking for permission from the copyright holder. However, for reasons that still don't make any sense, the 9th Circuit seems to think that as long as something is purely digital, first sale no longer applies.

The Supreme Court refused to hear the appeal, so while technically the ruling still only applies in the 9th Circuit, it's what most consider to be the state of the law in the US (there is always the possibility a different circuit court could disagree and it could go back to the Supreme Court -- and one could argue that some other rulings in the 9th Circuit already conflict -- but for now, the Autodesk case is widely considered the standard). There is, also, the upcoming ReDigi case, of which there's a decent profile in the Boston Globe -- but that's focused on music, and it's not entirely clear how that one will come out either.

Over in Europe, however, it appears that the European Court of Justice (who has been pushing out some relatively insightful rulings on copyright issues lately) seems to recognize just how ridiculous the 9th Circuit's view on first sale and software really is. In a new ruling, it has upheld the right of first sale on software, basically saying that you are buying a license and that license is resellable.

The specific case involved a company, UsedSoft, that was trying to create a market in reselling used software. Oracle sued, claiming that its license agreement specifically stated that it could not be resold. However, the court found that the right of first sale applied. In the court's language, it talks about copyright "exhaustion" which is the idea that once you've sold something you've "exhausted" your right to control it.

It makes no difference, in a situation such as that at issue in the main proceedings, whether the copy of the computer program was made available to the customer by the rightholder concerned by means of a download from the rightholder’s website or by means of a material medium such as a CD-ROM or DVD. Even if, in the latter case too, the rightholder formally separates the customer’s right to use the copy of the program supplied from the operation of transferring the copy of the program to the customer on a material medium, the operation of downloading from that medium a copy of the computer program and that of concluding a licence agreement remain inseparable from the point of view of the acquirer, for the reasons set out in paragraph 44 above. Since an acquirer who downloads a copy of the program concerned by means of a material medium such as a CD-ROM or DVD and concludes a licence agreement for that copy receives the right to use the copy for an unlimited period in return for payment of a fee, it must be considered that those two operations likewise involve, in the case of the making available of a copy of the computer program concerned by means of a material medium such as a CD-ROM or DVD, the transfer of the right of ownership of that copy.

There are some interesting side notes on this. First, the court also rules that if Oracle promised free maintenance updates to the original licensee, it must continue to provide those to whomever purchased the "used" software. However, it also puts a couple of limitations on this. The first one is somewhat obvious: the seller of the used license can no longer be using the software. Oracle argued that this would be hard to track, but the court rightly points out that this is the same issue that those who sell software on CD-ROMs and DVDs face, but they figure out how to survive:

As Oracle rightly observes, ascertaining whether such a copy has been made unusable may prove difficult. However, a copyright holder who distributes copies of a computer program on a material medium such as a CD-ROM or DVD is faced with the same problem, since it is only with great difficulty that he can make sure that the original acquirer has not made copies of the program which he will continue to use after selling his material medium. To solve that problem, it is permissible for the distributor – whether ‘classic’ or ‘digital’ – to make use of technical protective measures such as product keys.

Separately, however, the court ruled that you cannot divvy up the number of seats in a license and sell them individually. That is, if you buy a 100 seat license to some software, and are only using 50, you can't then sell just those other 50 seats. This ruling says that the first sale only applies to the entire license agreement, basically.

There is some disagreement as to how "big" an impact this ruling will have. To be honest, I'm not convinced that the overall impact will be that large, but I think it is a good thing that the court appears to recognize that you cannot contract away certain rights granted to you under copyright. Copyright holders have long tried to remove the limitations and exceptions of copyright law through contracts and "licenses." Recognizing that those limitations and exceptions really do exist is important, and it's good to see the EU Court of Justice release a clear ruling on that issue.

Re:

Digital First Sale Doctrine

However, for reasons that still don't make any sense, the 9th Circuit seems to think that as long as something is purely digital, first sale no longer applies.

I disagree with that statement. The 9th Circuit has been relatively strict with respect to upholding license agreements governing digital transactions, but I'm not aware of any precedent that says that the first sale doctrine doesn't apply to digital goods.

Re: Digital First Sale Doctrine

you mean aside from the fact that almost every single digital good you buy tells you in the fine print that you are not, in fact, buying it, but are buying a license to use it? (well, software, anyway.)

Impact

This won't have much of an impact as long as the software companies are allowed to use DRM to circumvent your rights of ownership. They'll just make it so that the authentication server (or whatever) requires the new buyer to re-register, for a fee equivalent to the purchase price. You know, the same stunt that Microsoft and Sony are talking about pulling for their next consoles.

I've said it for years: DRM technology needs to be legally recognized as a hacking tool whose only use is to interfere with the property rights of computer owners, and its use needs to be criminalized. Until that happens, we'll never truly have any meaningful rights of ownership on our computers.

Re: Impact

True, DRM should be seen as deliberate circumvention of copyright law to give the manufacturer/publisher "rights" that they do not in fact have in law and to deprive consumers of rights they do have.

Not only should there not be a law banning DRM circumvention but as you state, DRM itself should be banned.

To be honest, we have to assume that it would save various industries a small fortune if DRM was banned while in no way increasing the level of copying that goes on, given that the most important point is that DRM doesn't stop piracy, it simply and solely infringes the rights of the paying customers.

Toss the DMCA

Re: Re: Re: Impact

Well, as long as we're doing what-if scenarios, I'd like to see copyright for software defined as requiring source code to be applicable. Here's the rationale:

Copyright has always existed for things that people can understand directly. If you read a book, you can see all the words in the book and analyze them, and from this you can learn to write similar books. If you watch a movie, you can observe the acting, the filming angles and lighting, and various other aspects of the film, and analyze them and learn to create a similar film. And in fact, high-quality specimens of each art are frequently used exactly this way, as examples and teaching aids in literature and filmmaking classes.

Software is likewise written in a way that makes sense to human beings and can be analyzed and understood, but it is then compiled to a form that makes sense only to a computer, and any analysis is both exceptionally difficult and only made possible at all due to sophisticated tools designed to automate the process of reinterpreting the compiled code in ways that are easier for human beings to understand.

Compiled software cannot (reasonably) be analyzed and learned from, and indeed the use and analysis of actual real-world examples is notably lacking from computer programming curricula, to the detriment of the discipline. Because the stated constitutional purpose of copyright is to promote the progress of science and the useful arts, and because compiled software cannot be used for such a purpose, no copyright should be granted on any software that is not distributed with full source.

This does not mean, of course, that the software must be licensed under "open-source licensing." That's a completely different matter, and indeed as a programmer I have access to the source code of a number of proprietary coding libraries that I am not legally permitted to redistribute. But simply having the code available is a great aid in working with the libraries, to the point where it is a policy at the company I work for to never use a library with no source available.

Re: Re: Re: Re: Impact

Compiled software is easy to read/learn from. There are plenty of disassemblers available. Just because you haven't taken the time/trouble to learn how to program in assembler doesn't mean it can't be done.

I can't understand French so do you think every book in French I buy should come with an English translation?

Re: Impact

I too think the impact will be low but for slightly different reasons. Now that more and more software is being delivered in a SaaS implementation, even where there is a client component to the application, these will need to "dial home" this aspect will be where the gatekeeping will take place. We are already seeing the software being distributed for free, with the licenses really tied to the "service" rather than to the actual app software code. Having said that, it is good to see this ruling and it would be nice to see U.S. courts recognize this too.

Re: Re: Impact

I suspect that SaaS, while very popular right now (partly due to the above), will never replace locally run software completely. There will always be a market for people and businesses that just want the security and control of running things themselves.

In fact, you can already see this by the several 'Run your personal cloud yourself with our box!'-things that are popping up now. The loop contained in that one sentence baffled and amused me at first, but now I think it does make sense if you look at it from the right angle, and given the current saas popularity.

Re: Re: Impact

We'll see.

While SaaS has a role to play, I do think that in the long run it won't be the predominant way that software is done (except perhaps with smartphones). There are a TON of downsides to it, most of which people haven't realized personally yet, which limits its utility. Eventually, people will rediscover why the software industry evolved away from this paradigm the first time around.

Regardless, this issue won't affect me personally at all, as (outside of trivial software I don't care about, like smartphone games) I don't use software that I am only licensing. I only use software I can rely on, which means software that I can actually own.

It'll be interesting to see how this will effect the PC game industry in Europe. Seeing as how most big game publishers are locking their games with required user account log-ins (like Steam and Battle.net, and all the MMOs), how are they going to handle ownership transfers?

Re:

You have to register to see reactions from the developers, but reactions tend to be varied. Some are saying this will push the move to SaaS such as OnLive and Gaikai, others are saying it will push for more DLC, and someone also suggested it could create a new marketplace. Overall, I don't think this is going to be some radical change in the industry, but it might hurt some DRM products as they will have to now update for license transfers and older products could cause a few headaches.

When will Games get the same treatment?

I'm a bit perturbed and I don't understand why the US government does not take more action to take a look at how Publishers of software take advantage of their customers.

Case in point: Ubisoft sold a game called Silent Hunter 5 back in March 2010. The game was released in pretty much a broken and almost unplayable state. To this day, over a year later, the game is still relatively broken. Certain features that are REQUIRED or necessary to play the game successfully are still broken to this day and Ubisoft dropped all support
pretty much right after release of the game.

If a company, and it should matter if it a game developer/publisher or a business oriented dev/pub, sells a "LICENSE" for said product, should they not be held liable that they did not keep up their end of the bargain? As a gamer I see this time and time again and NO ONE does anything about it. I think it is unfair and TOTAL legal negligence by the US Legal system. I pay money for a product that is supposed to perform a certain way, yet there is absolutely ZERO recourse for me to make a developer or company follow through on their promise of a working product.

And I don't want to hear from some people that argue "varieties of hardware, setups, etc". I work as an IT guy in a firm of over 250 people. I run several servers and many varieties of clients with varying hardware. It is a poor excuse. If the companies making the products can't ensure proper viability, then they shouldn't be making the product. Period!

Who pays back all the people that bought Silent Hunter IV? Who backs them up and says, "Yes, you've been wronged?". No one. Who says, "Here's what you can do to rectify the problem...". No one. The publisher sure won't give you the money back!

Techdirt should really have a legal section regarding stuff like this. If we do not start bringing issues like this to the forefront publishers and developers will continue to take advantage of their consumers.

Low impact would be GOOD

As a resident of Sweden, I've watched over the years with increasing horror how more and more software, movies and music arrives with it's own EULA, or restrictions stating that it's "illegal to sell, show or copy - even for your own use" which by the way violates Swedish consumer law at every turn (not that US companies usually give a crap about details like legality). DRM is also a way to remove our ability to make the legal copies the law allows us, but it's important to understand that breaking the DRM and making copies isn't actually illegal here, but we have certainly been moving in that direction...

This ruling is a step back, reinforcing the laws that have been slowly eroding - eroding to the point where even films produced in Sweden for Swedish audiences start with a copyright screen that fraudulently claims that making copies for personal use is illegal, which of course is a load of dingo's kidneys, and should in all honesty land a few rich execs in prison until they learn not to lie to the people about their consumer rights.

From my Swedish standpoint, no, I don't see any huge impacts on how things are done, but this may just keep the industry in check, reminding them that legally they are treading on thin ice, and that continually violating consumer rights may just turn out to land them in a shit-storm that simply wasn't on their forecast.

While first sale rights may be going out the window in the US due to outsourced production and license agreements, this hasn't really happened in Europe yet. Hopefully, this means that it never will. I think in this case, no big impact is a good thing, as it means we are hitting the breaks on the Americanization of Europe.

"There is some disagreement as to how "big" an impact this ruling will have. To be honest, I'm not convinced that the overall impact will be that large"

Probably won't be huge for large licenses or corporate software. But for games software I think it might be a different story. Could be large implications for services like Steam and Origin and just the digital games market in general. Let alone the consoles markets push to destroy used sales by taking more content off the disc and using digital licenses.

Probably wont be long until someone tries to open a digital version of Gamestop. Buy cheap and sell at a massive profit but without the physical product to ship and store.

how do i remove the software for distribution

i deal in all sorts of second hand goods. i often obtain second hand laptops loaded with thousands of dollars in software. what process could i use to strip off the programs and resell in a usable form?

in the past i have only given value to the hardware not the software. i laptops are 'nuked' and than given a clean install of windows.

Clarification on 'Dividing' the Licences

I just wanted to clarify the point on dividing licences and how this ruling relates to other software vendors. Note that this ruling specifically refers to an Oracle ‘licence’ block of 25 CALs i.e.: a company that purchased 100 blocks (2500) CALs can sell off those 100 blocks to 100 different customers but it cannot break down the individual licence blocks e.g.: a ‘licence’ block cannot be broken down into 5 x 5 user licences. Similarly, with Microsoft Volume LA’s (Select / Enterprise), such LA’s can also be broken down to licence level e.g.: an LA containing 1000 x Office 2010 PRO can be broken down and sold off in smaller quantities but you cannot break down at the individual Office 2010 PRO licence level and then sell off as individual components (Word, Excel, PowerPoint, Access etc). Another Microsoft product example would be the Windows SBS CALs, which could be purchased in licence blocks of 5 or 20 – a company may purchase a 2 licences, 1 containing 20 CALs + the other containing 5 CALs – if the ECJ ruling is applied here, you cannot break down the licence block of 20 and sell off to two different customers in smaller quantities such as 10 + 10 CALs but you can sell the 2 licence blocks to 2 different customers.

In any case, this court ruling puts a massive dent in the FUD (Fear, Uncertainty & Doubt) tactics employed by the software vendors. However, worth noting that Usedsoft's use of a ‘Notary’ (in part, to hide where the licences came from) was deemed illegal by the German courts and Usedsoft is now also going through insolvency proceedings. There are other secondary software licence suppliers whom adopt more transparent business models that do not rely on the Exhaustion Principle eg: www.discount-licensing.com.

Bigger impact than you might think

Theruling may have been on Oracle software, but how about other digital products that people buy. MP3s in particular. They're not DRMed, unlike some digital products, so it would be easy to pass someone your MP3 files for them to use.

The end of OEM licences?

What I'm now wondering about, is whether OEM licences, for instance an OS like windows that is supposed to come with a computer, are still valid in the EU.

Apparently in the EU we're now allowed to resell the software. But it wouldn't come with a computer anymore if I decide to remove the OS from my brand new laptop and resell it. Microsoft no doubt already registered the properties of the system it was primarily installed on, and a potential buyer might not even be able to install it on their own system if it is too different from the laptop it came from?

i actually would not mind at all if a hack/crack is necessarily since that would likely lead to rock bottom pricing for those who 'know what to do.' i believe used product should be much cheaper than a new one. but if a download is just as useful used as new that may not be the case.

Does this mean...

Does this mean that I can download the unlicensed game on torrent legally as long as I don't download a "license" with it? If the license isn't a sale-able item and not legally considered a "sale" at all, how can this be stealing?